Co-author of the EIF report ‘The Digital World in 2030: What Place for Europe?’ Ajit Jaokar is starting series of interviews with key thought leaders from the industry, academic and political circles.
The first interviewee is Jag Minhas, a Managing Partner at Telematics Partners. Jan is consulting business headquartered in the thriving heart of Europe’s digital innovation and financial services industries. Telematics Partners is one of the world’s leading practitioners in telematics strategy & business development, project planning and implementation for the insurance industry and has extensive experience advising and helping businesses win contracts and deliver successful projects based upon the use of telematics and data technologies which have the potential to completely transform the end customer’s experience of motor insurance.
For several years in the insurance industry, insurance products powered by “connected-car” technologies such as digital telematics have been confined to the very highest risk customer segments, where the premiums (customer cost of insurance) are at their highest.
For example, insurance companies view very young drivers in urban areas as attracting the highest levels of probability of accident, and therefore the highest source of loss as a result of a potential future claim. The annual rates for insurance cover for these types of customer have traditionally been very high, and indeed almost prohibitive for young drivers. Where this customer volunteers to have the insurer professionally fit a “black box” based telematics device into the customer’s car, the insurance company typically offers a premium that more accurately reflects the risk of the driver based upon their actual driving behaviour determined by the real-time telemetry transmitted to the insurer by the device in the car. Safer driving by the customer is rewarded with a lower premium, and the insurer has the ability to set the premium at a level that more accurately reflects the actual risk.
The cost of the “black box” device itself is factored into the premium itself, which means that insurance companies have only served the highest risk (highest premium) customer segments with this type of product. With the demand levels relatively low compared to the rest of the market, the cost of supply of the “black box” based telematics technology has remained high, preventing the benefits of this type of technology innovation being made available to customers and insurers in all (mass-market) customer segments. However, we’re seeing very strong signs of this situation changing:
• Insurance providers are viewing the ability to connect their customers with a view of their driving telemetry data as a means by which to open up much more customer-friendly web and app-based engagement opportunities and customer relationships that weren’t possible before.
• Insurance providers are now beginning to see the positive economic performance (significantly better loss ratios) in telematics-powered policies, and are therefore becoming much more ready to market these new insurance products to a broader set of their customers; thus driving down the cost of the technology on the supply-side.
• Newer, cheaper forms of telematics technology are beginning to prove their viability for car insurance purposes, e.g. customer-installed “plug in” or “self-attach” devices and smartphone-based apps
• Customer communities and public authorities are beginning to see how the benefits of connected-car telematics can help to encourage safer driving behaviours and more effective emergency services response to car incident situations.
• Customers are increasingly living digital lifestyles, and are expecting more from their service providers. Digital telematics is emerging as an enabling capability within an ecosystem of connected-cars, providing useful applications in information, communications, entertainment, diagnostics, security, insurance etc.
All of these things point towards a more pervasive, mass-market application of digital telematics in connected-cars for insurance purposes.
We believe that motor insurance products of the future will be unrecognisable compared to how they exist today. The connected-car ecosystem and digital telematics will serve to completely transform the customer experience of motoring services - including insurance products.
We believe that digital telematics related to connected-cars and advances in automotive technology will enable service providers to offer experiences to customers which are much more in tune with their “whole” lifestyle in much more highly-personalised ways, through increasingly digital touch-points. We see car insurance cover being just one part of a wider, more useful, customer lifestyle experience in the future.
Furthermore, we believe that this sort of disruption will come about through smarter digital customer relationships, and can see a vision of the future where these needs are serviced by market players established in this space – e.g. communications service providers, digital lifestyle service providers etc.
The appetite for insurance providers to step into the “brave new world” of connected-car telematics presents a significant barrier in the short term. We are seeing the more innovative players in the industry taking much more forward-looking, and ambitious approach to business cases, and this will help to move the industry forward in this space.
In the medium term, concerns over rights to individual privacy and regulations related to fair treatment of customers served by the insurance industry will present challenges that may need to be overcome to break through the “tipping point” for telematics powered insurance products.
• Professionally-installed “black box” telematics devices become cheaper as insurance companies drive further demand in customer segments, causing supply-costs to fall.
• Adjacent forms of in-car telemetry start to prove their viability for accurate risk-assessment of driving behaviours – e.g. “plug-in” dongles, self-install devices and smartphone apps.
• Insurance providers will focus their investment on rebuilding customer relationships through the use of digital touch-points enabled by connected-car telematics sources.
• National and community regulators will set standards related to privacy and customer fair treatment of rating associated with telematics-powered insurance products.
• Insurance industry and car manufacturers (OEMs) will collaborate to standardise and harmonise the relationship between embedded telematics data sources and the analytics that insurers require to rate customer premiums.
• Digital Service Providers extend their “digital lifestyle” portfolio to incorporate insurance products into their product offerings.
• All cars will be transmitting driver behaviour telemetry to car owners and service providers from the moment they roll off the assembly line until the end of their life in the scrapyard.
• Standalone car-insurance products in the mass-market will be replaced by differential feature-points in “connected-lifestyle” digital products of the future.
The contrary view is that car insurance will continue to be offered to the mass-market as a standalone risk-cover product based upon traditional risk-assessment models for many years to come because privacy issues and costs will limit applicability of telematics-powered insurance to only the high-premium (high risk) customer segments.
Not only does telematics-powered motor insurance have the capability to make significant progress towards safer driving in our communities, it also presents an opportunities for providers of insurance products to connect with customers in ways which were not possible in the traditional methods of risk underwriting. This opens up potentially significant economic benefits to both consumers and service providers - for example the provision of new services, and for customers to better optimise their spending.